Believe it or not the iconic Walt Disney Co., which is traded on the New York Stock Exchange under the ticker DIS is now officially the sixth most shorted stock on the Dow Jones. It now occupies this position after displacing Johnson & Johnson (JNJ) to hold this dubious honour. The data is from August 31, 2015 and it confirms that the days to cover figure for Disney stock was recorded at 3.31, which is significantly higher than the comparable days to cover figure for the average of all Dow Jones Industrial Average components which weighed in at a figure of 2.55.
The days to cover metric is an important one to understand when determining whether to short a stock or to go long on the stock. This takes into consideration the average daily share volume that is traded as well as the total number of shares that are shorted. This is then compared to the average daily volume in the index – the Dow, and a calculation will ascertain how many days are required to close out all the short positions on Disney stock. Since Disney stock’s days to cover figure is higher than the average of the Dow, there are more short positions on the stock.
Precisely what the higher short interest figure means compared to stocks which don’t have it requires more understanding. The most obvious reason why a particular stock would have a higher days to cover figure than the average of the index is that traders are bearish on that stock’s prospects. It could also be that traders are hedging their bets by going long on stock X and going short on Disney.
So who can Save Disney?
This is an interesting question, and one would be remiss to think that the Walt Disney Co. is in need of any saving. Stocks typically go through cycles where there is excess shorting at times, and at other times where traders are bullish on the stock. In Disney’s case, there are all sorts of plans in the pipeline to shore up investor sentiment and raise the stock price. One of the trump cards that the brand is banking on is the relaunch of a classic Disney favourite – The Muppets. ABC, a Disney Channel, is going long on The Muppets being a smash hit when it is released in late September. During the month of August, Disney stock plummeted on the back of weak quarterly results. Stock declines of 15% were recorded, which has resulted in the excess shorting of the stock. Among others, Disney’s ESPN network has reduced number of subscribers and the television channel, ABC recorded declines in commercial revenues. Combined, these factors weighed heavily on the price of Disney stock which rallied to $121.69 by August 4, 2015, and subsequently plunged to a low of $95.36 by August 24, 2015.
Disney has since rebounded from its nadir and is now trading at $103.96 per share on September 16, 2015. At current prices, the stock is nowhere near its 52-week low of $78.54 per share, however it is also substantially off from its 52-week high of $122.08 per share. At current prices, the market capitalisation of Disney stock is $175.47 billion. The stock has a price-earnings ratio of 21.65 and earnings per share of 4.80. There is still plenty of optimism about the stock, since the 1-year target estimate price is $118.86 ($3.22 off from its 52-week high), but strong nonetheless. The next earnings date for the Walt Disney Co. is estimated to be November 4-9, 2015. Binary options traders have been closely following the days to cover figure for Walt Disney stock, and the prognosis for the short-term is reflected in the number of put positions that dominate on typical binary options trading platforms. However, the company has many plans in the pipeline that are likely to yield strong growth moving forward, and the bulls are out for long-term success in this multimedia stock.
Disney Partners with Fox to Offer Streaming to Chinese Internet Customers
There is also further room for optimism with the Walt Disney Co. coming from China. It was recently reported that the Walt Disney Co. has partnered with 20th Century Fox to allow Tencent (a Chinese Internet juggernaut) to be the sole distributor of 6 Star Wars films. This is yet another way that the Walt Disney Co. is utilising its tremendous clout in the online media world to dominate markets. This will allow the Walt Disney Co. to have unimpeded access to the Chinese markets via online streaming. The Chinese Internet giant – Tencent – derives its revenues from monthly subscriptions of approximately $3. For that price, customers get unfettered access to as much online content as they wish.
Price Performance and Upgrade/Downgrade History
It’s interesting to point out that analysts view Disney stock rather positively. On a scale of 1.0 which is a strong buy to 5.0 which is a sell, Disney has a mean recommendation of 2.2. This places it as a high-value stock with strong upside potential. The mean target is $118.86, with a median target of $120. It gets interesting when the high target is forecast, because analysts are bullish on Disney stock at $148. On the downside, Disney’s lower target is $89. Since August 5, 2015 analysts have however downgraded Disney stock 3 times. Jefferies was first with a downgrade from a buy to hold on August 5. This was followed by a downgrade by Wells Fargo on August 18 from outperform to market perform. On August 20, Bernstein downgraded Disney from an outperform rating to a market perform rating. The latest such research firm to initiate action on Disney stock was Credit Agricole which is expecting Disney to be upgraded to an outperform status.